Sacramento daily record-union. [volume] (Sacramento [Calif.]) 1875-1891, 1887-08-04
RAILROAD INVESTIGATION
CONTINUATION OF TESTIMONY BY
SENATOR STANFORD.
Little Value of the Central Pacific
Stock in 1S73-The Leases and
Relations of Branch Roads.

of Senator Stanford was 'esumed before the
Pacific Railroad Commission of Investigation
this morning.
Mr.. Anderson-Does your statement sub
mitted include all the money received by the
company up to May, 1862 and all that was paid
out up to that date?
Senator Stanford-Yes, sir; so understand
it. The amounts there given, believe, include
everything received by the company in bonds
subscription and money. The witness stated
! the bonds Of lS72, amounting to $4,000, 600,
were. he believed, issued to pay the debt of the
Central Pacific Company.
Mr.. Anderson asked what Interest account
had to be paid by the Central Pacific upon its
mortgage bonds?
Mr.. Stanford-There were the State Aid bonds,
amounting to million and half
Mr.. Anderson-Did not the State pay the in
| terest on those bonds?
Mr.. Stanford-Yes sir. The company subse-
| quently liquidated those bonds. There were the
convertible bonds and the floating debt. My
| recollection is that the road earned nothing
| in 1862 and the estimate that we placed upon
| the stock was that it was worthless. In 1871
Mr.. Huntington and myself purchased the
Croker interest for Is cents per share. That
| transaction shows the opinion we had among
ourselves as to the future of the road.
Mr.. Anderson-Was not Mr.. Croker after
ward reinstated and that transaction declared
| off?
Senator Stanford-Yes at the time of the sale
Mr.. Crockers health was much impaired, aud
| he intended to permanently retire from the
| company. After his return from Europe his
| health having been restored, he returned to
the business. The transaction was genuine
| one at the time.
Mr.. Anderson asked concerning private pur-
| chases made by the witness OF Central Pacific
| stock, where the price given was par. The wit
! ness said several purchases were made prior to
1871 to shut off blackmail suits. He did not
| think it was fair to estimate the value of the
| stock from these transactions. Its market value
| at the time would be much fairer Upon the
| completion of the road the stock was worthless,
| except for purposes of control. No efforts were
made TO sell out because they were considered
useless. During the last two years of construc-
| ton there was not time when the projectors
would not have gotten out of the enterprise
| could they have done So In 1873 Mr. Hunt
| ington and Mr.. Hopkins offered to sell so per
cent of their stock for 20 cents share but they
| were not able to effect the transactions though
| they were anxious to do SO.
Mr.. Anderson asked concerning the black
| mailing suits brought against the Central Pa
cife Company during 1871 to 1873, referred to by
the witness, and inquired what the motive Of
the company was in paying at the rate of $500 or
$500 a share for stock to silence them.
Senator Stanford replied that the allegations
in the complaints were assaults upon the per-
sonal character of the Directors of the Central
Pacific Company: At the time, these men were
engaged in building other railroads. and believ-
ing that their credit was at stake, they thought
| 1t cheaper to buy the litigants out than fight
them. His judgment was that the company did
wrong, for he never believed that the credit of
himself and associates could be injured by such
suits.
Mr.. Anderson next referred to the transfer of
the Western Pacific Railroad, the failure of the
late Charles Mclaughlin to carry through the
enterprise. and the ultimate completion of the
line by the Contract and Finance Company
The witness could not recolIect all the details of
| this transaction. He said the construction of
the road was paid for i'll its stock and bonds
and so carried through, but those stocks and
bonds would not have paid for the work had
they been sold in the market. The road has,
however since became very valuable prop
erty.
In answer to question concerning the cost OF
construction, the witness said, with a SMILE
that the Southern Pacific Company was now
paying high price for rails in order to protect
the Pennsylvania iron miners. According to
Mr.. Anderson's theory of the position of the
Central Pacific Company toward the Govern
was a matter in which the Government was in
terested. He did not deny that the Contract and
Finance Western Development and other con
struction companies which performed work for
the Central Pacific made q profit out of their
work He said that it would not be claimed that
the owners OF the construction companies were
not entitled to something for their enterprise
He said at the time all the feeders of the Central
Pacific were built and the consultations made
with other routes, he was stakeholder in the
Contract and Finance, Western Development
and the Central Pacific, and had participated in
letting and taking the contracts. No contract
was ever made that was not benefit to both
parties, and he of course participated in the
profit in both cases. This was true of all his
associates, except Huntington, who never pa!-
| ticipated in the making or letting of the con-
tracts because he was most of the time absent
from the state. The basis of the contracts made
with these construction companies was. in most
| cases, cost, with ten per cent. added.
Mr.. Anderson-Was that the basis in dealing
with the firm of Huntington, Hopkins & Co !?
senator Stanford-As to that firm 1 would
| say that my instructions to the employees of
| the Central Pacific were to give the firm of
huntington, Hopkins q Co, the preference at
the same prices. Where other merchants bid
lower | instructed them to purchase ut the
lowest figures, and to make no private arrange
ments that would interfere with this. but to
merely give that firm the preference when
prices were the same. The purchasing agent
of the Central Pacific was told that if he VIC
lated these instructions would dischage him.
In answer to interrogations the witness stated
that concerning the construction of the
Northern Railway, that line made money from
| the start and was OF great advantage to the
Central Pacific. At the time these feeders were
being built and leased to the Central Pacific,
he said, there was great outcry that they were
being saddled upon the Central Pacific for the
purpose of weakening it. He said no road had
ever been leased by the Central Pacific without
the question being considered whetherthe lease
would not be of benefit. All the leases were
| made for short periods-fye years. he believed
and each one contained provision that if
the lease resulted unsatisfactory to the Central
Pacific Company it could be terminated
As to the California Pacific Railroad, the wit
controlling interest in the company in ISL The
stock amounted to S12,0000O0, and they pur-
chased 81, 10000. The line being shorter than
the Central Pacific to Sacramento II was a
formidable competitor of the latter, ard both
lines were badly hurt by cutting rates. The Cali
fornia Pacific people finally projected Il road to
Marysyille. in order to extricate themselves
| from their financial difficulties Had this road
been built the Central Pacific would have been
badly injured, and the owners of the latter ulti-
mately determined to get control of it: They
purchased its stock, and gu lrauteed the interest
on its bonds. After paying this interest for
awhile, and finding the road did not pay bank.
ruptcy proceedings were entered. Finally the
creditors reduced the interest and the Contra
Pacific people settled. The original lease expired
"A year ago.
As the result of his examination Mr. Ande.-
son brought out the fact that the aided line of
the Central Pacific ends at Sacramento, and that
| ii it should become necessary to separate that
| line from the Southern Pacific Company's svs-
| tenn, the road would have no right to enter San
Francisco. Senator Stanford said that this was
true. The Central Pacific would, however. con-
meet with the river, which would enable il to
reach the BAY. He called the attention of the
Commission to the lease made by the Central
Pacific to the southern Pacific Company, claim
ing that 1t was great advantage to the former
corporation.
In response to interrogatories Senator Stan
| ford gave Il history of the construction of the
California and Oregon Railroad and the control
subsequently obtained of the Willard line
known as the Oregon and California. The lease
of the two roads to the Southern Pacific Com
| pany and their operation in connection with
the Central Pacific he thought would be of great
advantage to the latter company when they
were completed. The consideration given the
Pacific improvement Company for the construc-
ton of the road 70 the State line he thought
was not excessive. Bonds amounting to 500
600 had been kept back by the Central Pacific
until the road is completed.
Mr.. Anderson asked if the witness could state
whether or not the leases made by the Central
Pacific, and subsequently by the Southern Pa
cific Company, had, as a whole, been profits able
to the companies concerned?
Senator Stanford was unable to answer the
question, and referred to Mr.. Miller, who was
present. The latter said he was unable to seq
regate the accounts in his mind, but as a whole
he would state that the leases had been profit
able.
VIII you explain the relations existing be
tween the Central Pacific and the Southern
Pacific Company at the time the Southern
Pacific was leased to the Central Pacific
Senator Stanford gave a history Of the
Southern Pacific railroad.
Mr.. Littler asked Senator Stanford why they
went TO Kentucky to get out a charter tor the
Southern Pacific.
Senator Stanford replied that they went to
Kentucky for the reason that a charter could be
obtained there which would permit of their
leasing roads in any part of the country.
Mr.. Anderson now wanted to know how the
lease of the Central Pacific was acquired by the
Southern Pacific Company.
According to that lease, said the Senator the
southern Pacific Company agrees to pay inter
est on the first mortgage bonds of the Central
nd n "a 10 ear Of re OIL ar ind